Being a fund selector is a tough job, especially during the recent pandemic. Marco Pastorino (pictured), a financial consultant at Azimut Capital Management and one of the top-rated professionals on SharingAlpha, talks exclusively to fundeye about his process.
He views that how funds perform during a downturn is a great indicator as to the quality of the product. He said it can be a good indicator of the skill of the manager, showing how they can contain the risks of the market and also their ability to return to a risk-on approach when markets settle.
In 2020, Mr Pastorino found that Pimco's Dynamic Fund performed well although in his words ‘the speed of the rotation in styles’, presumably into more value-oriented stocks, negatively impacted the fund a year later. However, he found that Pimco's Strategic Income Fund was a good defensive fund and keeping with his penchant for multi-asset products, also liked Allianz Dynamic Multi asset 75.
When asked if Covid presented market opportunities Mr Pastorino said: “Certainly Covid gave a great opportunity for sector strategies, especially in technology and in health, which became more important in portfolio construction than the past. Even if these sectors are now under attack due to high multiples in some specific stocks, the difference between the past and now is that you cannot completely ignore these sectors, because they are vital for the future”.
Emerging markets is a divisive subject for many market participants and Mr Pastorino is not optimistic about the region’s chances this year. One of his reasons is that compared to the large developed economies such as the US and Europe, emerging markets haven’t put anywhere near the same amount of stimulus into their markets. He also views that emerging countries have not been able to vaccinate their populations to the level of the West.
Interestingly, he also views that one of the fallouts from the pandemic is that many large multinationals are closing factories in emerging markets ‘in some cases taking advantage of inducements to relocate to their home countries’.
While it was clear that tech stocks outperformed last year, Mr Pastorino said that while “economic recovery is on the way, it may not be a regular and coherent process”. He views that there is going to be heightened volatility which means that active management is a priority.
His views on where fund selectors should be focused is intriguing. He doesn’t think that there’s a particular sector that should be concentrated in a portfolio. He does think that the dollar may weaken therefore some hedging should be done although his belief in large cap US stocks remaining dominant persists, due in part to recent large M&A deals such as Amazon’s purchase of MGM and AT&T buying Time Warner.
“[these deals] demonstrate that the mightiest companies have more cash flow than in the past, and their power could be a great chance for investors. On the idea that technology is not coming back due to its trading on high multiples, a good portfolio needs investment in tech. It is fundamental.”
Finally, he views that ‘China is a world itself’ and must have a place in portfolio construction. At the moment he thinks this is mainly for equities but at some point thinks that a multi-asset fund could focus entirely on China, containing both bonds and stocks.
Mr Pastorino is clearly a fund selector with an eye for winners but one thing he said about his job was poignant: “the research, you understand, never ends.”
